Health Insurance Companies and Monopoly

America’s health care system is failing; this is no longer news. The system is not working as well as it can, or rather, as well as it should. The United States of America holds the title of the largest economy in the world, and what do we have to show for it – a dysfunctional healthcare system. Prices of healthcare, a basic need, keep increasing every day, and we seem to have just taken it as the norm. It shouldn’t be. It mustn’t be. 

For so long, we have just sat and watched our healthcare system plummet into disarray. The fight against the increase in prices of healthcare is one we are losing. Then comes the next question –Who is to blame for the state of the broken healthcare system? There is no one answer to that, but I can give you the most dominant one, healthcare insurance companies. Yes, healthcare insurance companies. They are ruining the healthcare system, and many of us don’t even know it. 

One of the major contributors to the problems of the healthcare system is lack of competition. Health insurance companies are essentially removing competition to force a system where they can have total control of the market. The power these insurance companies are gaining seems to be increasing each year exponentially and this is corresponding to high prices of healthcare.

By health insurance companies merging, the competition at the top is reducing. There is already a total monopoly in some parts of the country. The power health insurance companies wield in these regions is simply shocking, which makes it even scarier to consider that this power is only going to increase. Very soon, a monopoly will not even be able to justify this power; it’d be more like a monopsony. 

A monopsony is basically a market structure where only one buyer controls the market. The buyer has captured enough control over a market to dictate terms to its suppliers. The level of power such a buyer will have over the market is staggering. An example of a company that wields this power is Walmart. Some experts argue that a monopsony is not bad for the healthcare system as it helps to restrain the cost of healthcare. Don’t even buy that at all. A monopsony in the healthcare system will ruin everything. Let me break it down.

If a company has a monopsony over a market, it will be able to dictate terms to its suppliers. The suppliers have no choice because there is only one buyer. Consider ten people selling the same good, and there is only one buyer. The buyer will be able to force price concessions and discounts out of the sellers because the sellers have no other choice. They either accept these concessions or run out of business. Walmart has used this strategy to drive down prices of goods for the public for years. This is why many experts believe monopsony is not as bad as it seems. 

The only issue is that when it comes to healthcare insurance companies, it is not a power you want them to have. Seriously, I can’t even begin to imagine these companies having that amount of power. The power they have now has crippled the healthcare system, how much more with more power. I don’t even want to think of it. These companies are ruthless. The problem many have with the kind of power Walmart has is that while the general public is benefitting, the suppliers are usually not. Many suppliers aren’t able to maximize their profits, with some having to settle for almost negligible profits to stay in business. This doesn’t seem fair enough. But, trust me, if health insurance companies get this level of power, this will pale in comparison.

If they get this power, both the suppliers and the public will suffer because of their insatiable want to suck out every last penny in profit. They will force suppliers to make price concessions, but these concessions will not reflect on the general public, no, it will only reflect in the bank accounts of their CEOs. How can I make such a bold statement? How can I be so sure? Well, in 1999, Aetna and Prudential merged. After the merge, a study showed the income for hospitals and doctors reduced, as expected, but the premiums they charged the public also increased. Where do you think all those extra profits went?

You may be thinking that it’s just one case. It shouldn’t dictate how others may act. Okay, consider this. In 2016, CEOs of health insurance companies took home a total of 171.8 million dollars in compensation. For context, that money will have covered the costs of sixty thousand people that year. Sixty thousand people! So, think again.

Do you now see my problem with these companies having so much power? There is absolutely no guarantee that they will benefit the public or the providers. It’s a win-win for them. And they know it, which is why many of these giants are coming together. These giants are no longer fighting themselves; they are joining forces to fight us. In 2015, Aetna and Humana tried to tie-up in a deal worth $37 billion. The deal failed because a federal court blocked it on the basis that it would harm competition, and rightfully so. The federal court did what it should have done a long time ago. 

Many hospitals are merging today and absorbing many practices for a variety of reasons, but majorly to combat the power of health insurance companies at the negotiating table. These health insurance companies saw this and decided to join forces to gain an advantage again at the negotiating table. Everything is just about the money for them, like many other businesses in America. It’s just that there is a difference here – human lives are actually on the line. The patients in dire need of assistance have to bear the brunt of their lust for money.

Competition is necessary to keep businesses in check. If there is a monopoly, a firm doesn’t have to bother about a reduction in prices. The push for quality and better services becomes relaxed because the public has no other choice. They don’t have to come up with fresh ideas of staying relevant because there is virtually no need to. The whole system is going to get very messed up. Physicians that stand up to these healthcare insurance companies are getting dropped. The implication of dropping these physicians is that the ties they have established with their patients get destroyed. These ties take years to build and is the reason many patients are even adhering to medical advice in the first place. On the other hand, Patients cannot afford to leave these insurance companies because there are no other viable choices. Whichever way you consider it, it doesn’t look good. 

The summary? Health insurance giants are no longer fighting one another; they are joining powers to crush smaller forces, and in the process, hurting patients. The few independent physicians that remain are putting up a fight, but it’s not looking promising. If you think the healthcare system of America is bad now, wait till these insurance companies get the power they are aggressively seeking. They will redefine bad.

Again, I hope it doesn’t get to this level. I’m not banking on it, though.

References

  1. https://www.openmarketsinstitute.org/learn/health-insurance-monopoly
  2. https://foreignpolicy.com/2013/04/29/the-case-for-breaking-up-walmart/
  3. https://www.brookings.edu/research/making-health-care-markets-work-competition-policy-for-health-care/
  4. https://www.modernhealthcare.com/article/20170427/NEWS/170429877/health-insurer-ceos-score-2016-pay-raises-despite-uncertain-future
  5. https://www.antitrustinstitute.org/wp-content/uploads/2018/08/Havighurst.pdf
  6. https://www.ama-assn.org/delivering-care/patient-support-advocacy/most-commercial-health-insurance-markets-are-highly